Robinhood looks to cut spiraling losses with more offerings as retail investor interest wanes

• Disappointment mounts at Robinhood in Q4, when pretax losses widened to $420 million.
• The digital brokerage will need to diversify and expand their offerings to boost user numbers after the retail investor craze ends. 
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The results are in: Robinhood’s losses widened substantially in Q4 as tumbling average user spend hurt trading. The digital broker may be forced to expand its offerings to limit future losses.

Q4 pretax losses widened to $420 million, compared with a mere $19 million a year before.

Average revenues per user slumped 39% year over year (YoY) to $64. Robinhood blamed the decline on lower trading volumes for options and equities.

Despite the troubling bottom-line performance, net revenues increased 14% to $363 million for Q4 and 89% to $1.82 billion for the year.

How we got here: The pandemic led to a flood of new investors in the stock market. Roughly 15% of retail investors in early 2021 traded for the first time in 2020, per a Charles Schwab survey.

The retail investing boom was fueled by stronger personal savings during the pandemic and greater market volatility.

The GameStop stock saga in early 2021 and emergence of other “meme stocks” then prolonged the investment craze for commission-free trading apps like eToro, ZuluTrade, and Robinhood.

What now? Robinhood’s deepening losses are emblematic of the broader industry: Other publicly listed digital brokers, like eToro and Coinbase, have also posted disappointing results amid a slowdown in investor enthusiasm.

We predict trading apps will increasingly look for novel ways to benefit from cryptos to reverse falling trading volumes. Robinhood, for example, said in its earnings that it will roll out a crypto wallet in Q1 2022 that would let users directly hold and receive cryptos without having to convert them into fiat currency, potentially encouraging greater trading volume.

Adding long-term investing options can also maintain user numbers and attract new customers. Robinhood said it will offer retirement accounts by mid-year.

And incorporating social media elements into trading platforms is crucial to lifting engagement and trading volume.

Brokers must also offer a wider range of assets to trade, creating a more unified trading experience for users and limiting attrition to competitors’ platforms: Earlier this month, eToro launched a themed premium portfolio that gives investors long-term exposure to stocks and crypto assets within the metaverse industry.

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